Are you looking for an asset that cashflows more? Is your goal to get cashflow to scale? If you answer in the affirmative, then short-term rentals are for you. In this episode, Chris Seveney interviews Christopher Levarek, the Managing Partner with Valkere Investment Group, about why short-term rentals can help you grow your wealth. He shares the story of how he found his passion for real estate and why every deal he has ever done has always been with a partner. Christopher also talks about the BRRRR approach, assessing if it’s something people can do and scale. Diving deeper into short-term rentals, he then shares his criteria on choosing the properties and how he came to launching a fund. Join this conversation and learn more about investing with insights and lessons from Christopher!

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Cashflow To Scale With Short-Term Rentals With Christopher Levarek

In this episode, we have a special guest. We’ve got a full-time real investor who is the Managing Partner with Valkere Investment Group. We have Chris Levarek. Chris, how are you? I’m good. Thanks for having me. I appreciate it. Chris is out of the Southwest in Phoenix so you’re probably getting a little better weather than I’m getting here in the Mid-Atlantic region. Chris, why don’t we start by telling us a little bit about what you’ve got going on? I run a 506(c) accredited fund. I got a couple of deals in there. We raised for multifamily and do short-term rental offerings there. I then also teach short-term rental. If you don’t want to be a passive investor and want to go do it yourself, I have a course and a coaching program. Before we roll back to how you got invested, I love asking this question because I’m curious if your results are similar to mine. How many people turn around bought 1 or 2 assets and invest in your fund after taking your coaching program? After they learn how hard it is? Yes. We launched our program so I don’t have a lot of the data yet but it’s true, as soon as they see it’s not all rainbows and butterflies, they want the hands-off approach. A funny story, when I started, we do a lot of mortgage note investing and people ask, “Where were you getting your investors?” I’m like, “From investors who are taking the same class as me. We’re all on the same webinar.” I’d reach out and I’m like, “If you ever not want to do this and partner with somebody and have them do all the work.” Most people realize if they’ve only got $20,000 or $50,000, they say, “I can go make 15% but I’m going to make $3,000 to do how many hours of work where I can give somebody this money and still make about the same? Let me think about that.” You’re a former firefighter in the Air Force and went to ASU but where did the passion for real estate come in? It happened a lot. I was in an IT corporate career after I got out of the Air Force. For twelve years, I was an engineer. I rose in the ranks and dumped a lot of money into a 401(k) with the idea of setting myself up with a retirement plan. In 2018, I remember they were tweaking the Fed rate back then and it caused a dip in the market same as what’s going on in 2023. I remember looking at my 401(k) and the $10,000 was gone in a day. I was like, “That sucks. Is it going to be there when I’m 67?” That got the wheels turning. I was listening to BiggerPockets back then. I had a 45-minute commute one way so it was plenty of time. I went and bought my first duplex in North Carolina. That’s where I started. I bought remote or out-of-state for my first deal. I partnered with a private lender on my first deal. Every deal I’ve done has never been just me. It’s always been a partner of some kind. You’re a pretty brave, first deal across the East Coast. Did you ever visit the property? Did you buy it sight unseen? What was that process like? I’ve only visited it once but it was long after I owned the original property. My brother was 3 or 4 hours South of that. He was in Fort Bragg, which is Fayetteville. We bought in Durham so about three hours North. Do you still own that rental or liquidate it? I sold the first one. The first one was a stinker, two 1940s duplexes, C-class housing and section 8. Somebody in there has to evict them and then spend $10,000 to rehab it. I rarely buy duplexes but anytime you hear a C-class rental and somebody says stinker, that’s pretty much what happens. When you penciled it out though and you’re looking to buy it, how did the numbers look at that point in time? Back then, we didn’t know. We did not put enough money into renovations. We were doing $50,000 renovations for 2 duplexes ended up being around $90,000. We were off the mark by a bit. However, we did the BRRRR approach and as far as a BRRRR, it was a solid deal. We got all our equity back out. It was so run down. You could have put easily another $50,000 into it to make it a lot better but it worked. We got our capital back. Our goal was to scale this and get our equity out. That was the first deal so what drove you to keep going? It sounds like you don’t seem to be the type of person who would give up after the first try anyways but what was your ambition to keep going? Was it, “Lesson learned. I’ve picked up some experience from this. Now I’m a little sharper and I’m starting to learn a little bit more about what I don’t know?” What was your mindset at that point in time? When you start, you’re like, “I’ll do 1 or 2 deals and I’ll be set. I’ll quit my job,” because you don’t know. When you do those duplexes with the BRRRRs, you’re going to make $100 a month in cashflow, especially if you pull all your equity out and have a high loan leverage point. From that, I was like, “I got to do ten more of these to even close to scratching the surface.” We jumped back into the next one and figured we could do better on the next duplex so we did another.   You’ve done BRRRRs and I’ve done some BRRRRs. When I was doing them, interest rates for one of my BRRRRs have a 2.5% interest rate on a 15-year loan that I started in 2013. That one matures the same year my son starts college. I’ll have another property paid off if I need to use that for college. I’m curious about your opinion about BRRRRs going forward. Is it going to be something people can do and scale at 6% or 7% interest rates? None unless they get a good deal or find it off the market, especially because a lot of sellers are so positioned from the 2021 run that they think prices should be at a certain level. Sellers are going to have to come down a bit before interest rates could even come close. I tell people too that the BRRRRs are good for a legacy wealth play but they don’t cashflow. Even in the olden days, I would argue that if you’re pulling all the equity out, you need a good deal for it to be cashflowing. The higher your mortgage is going to be, the more expense you’re going to have. Is it fulfilling what you’re trying to do? If it’s a legacy play, then yes. For people who aren’t familiar with the BRRRR, it’s you Buy, Rehab, Rent, Refinance, Repeat and try and get all the money that you put into it back out. Ours was a legacy play that we knew we were going to hold. Originally, it was only cashflowing $20 a month but if somebody was paying all that principle down on it, that was okay. In 2023, it cashflows $300 a month. If you hold it over time, rents will go up as long as it’s not in an HOA that has fees. If you’re going to fix your mortgage, rents will eventually go up probably a little higher than your expenses on those. If you ask anybody, the longer you hold real estate, typically the better off you are. You’re doing some rentals. What got you into the short-term rental game? It was trying to have cashflow for my business originally. I got into syndications and these longer-term hold plays. We’re waiting for 3 to 5 years for our cut. We’re trying to value-add an apartment for example. For the first 2 to 3 years, you’re spending either paying investors or making it stabilized and getting that property to be cashflowing. The owners or the GPs, General Partners, are not getting much until the end. I couldn’t run a business like that. I needed an asset that cashflow a little more or a more cashflow play, not as much an appreciation play. Short-term rentals are that. You can do ten-year interest-only loans and get a cashflow and an asset. You’re not paying down the property as much and all that stuff but you got money for the business. That’s why I teach it too because I’m like, “It depends. If your goal is to get cashflow to scale, short-term rental play is very efficient early on. If your goal is to get cashflow to scale, short-term rental play is very efficient early on. Click To Tweet Have you left your full-time job? Yes, I quit last March 2023. Wow. Congratulations. Thank you. I love talking about this because short-term rentals are at least a little bit heated debate on some of them. People love and hate them. There are so many different aspects of short-term rentals. Some people will go rent an apartment in New York City and then try and sublease it as a short-term rental and arbitrage or rent. That is one aspect that can be very high-risk, high-rewarding or it’s like, “I’m going to go buy a house in this beach town or somewhere that I’m renting it by the week,” which is very common or been common. What is the type of short-term rentals that you’re looking at? We don’t do arbitrage. I’ve partnered with a couple of people, 5 or 6 of them myself. We’ve done the more traditional method. I’ve done a hard money loan, renovated and traditional refi it out. Unfortunately, that doesn’t work as well anymore with the interest rates. You’re almost better off starting by getting a traditional loan. It’s those five-year holds. That’s how we picture it because we’ve been investing with other people to give them. I haven’t done an arbitrage. It’s a very cool model. I would argue that seller-financing, assumption loans and arbitrage are all great methods to buy a property that you don’t want to lock in long-term debt. Those are great methods. You started with the duplexes. Fast forward, you’re doing Reg D 506(c) which is a fund that accepts accredited investors. Why don’t you tell us a little bit about how that’s going, how you came to launching that, how long you’ve been working in the fund and a little bit more about that? We have Valkere Fund One. We’ve done a lot of funds before so it’s creating a fund or PPM per deal almost. We’ve had a fund of funds where it was open for 12 months and did 2 deals or syndications in them. Most of ours are close-ended. This is the first open-ended fund. We can continuously take on investors up to a certain limit but then they can cycle through as deals come through and we can use this fund repeatedly in multiple deals.   It’s been good. It’s education talking about the difference between a fund versus going into a single deal. The advantage for most people that they like is they get the 1K1, 1 paper PPM to sign and 1 portal login. A lot of people who are in 10 or 11 syndications in LP are logging into 5 or 6 different portals. A fund can be very useful to consolidate that for past investors. With all the FinTech companies out there and you used some IT stuff too, you create something that is a clearinghouse for all the different portals and somebody can connect all of them. It’s the same thing with your bank accounts. It’s like, “Why can’t I have one place where I can see my Chase, Credit Union and Wells Fargo and spread across the board?” Do the same thing with your funds and almost pull the APIs from Juniper Square, AppFolio and all these other places. It’s like, “Here’s one place.” It’s interesting you mentioned that. It’s genius the way you did that. I’m on my sixth fund in 2023. I did small funds up front that were closed because I wanted to test a lot of it. Is it 2 years or 3 years? Is it better to give lower pref, higher upside or higher pref, lower upside and see how the numbers worked? How much the fees were? I went through all these processes and then I realized after the 3rd or 4th one, it’s like, “I create a fund and then have different classes,” which are like, “For six months, I’m raising money for this deal or these deals,” then I close that section of the fund and then go to the next series. It’s like a series within the fund that you can do so you don’t have to do all the PPMs and different filings to Form Ds and register everything with the states every time. Do you do a disclosure per asset class or they’ve signed everything from the start? They signed everything from the start but our asset class is always notes. For our new fund, we went through the Regulation A+ offering, which is the SEC qualification. We report to the SEC. It’s good and bad. The bad is it’s expensive to get everything set up. The good is you can solicit to anybody. Accredited or non-accredited, it doesn’t matter. When you’re looking at your investor profile, there are X amount of accredited investors in your network, area and region. We have them and all the non-credit investors. Our main investment is only $2,500 so people can get in. What we find a lot with that is people use that to test the waters, see how it goes and then come back and reinvest. We got a lot of reinventors. Lauren, my partner on this, every last day of the month, she’s manning the phones because we issue monthly dividends. If it’s the end of the month, everyone’s like, “Let me get my money in so I can invest and my dividends start collecting tomorrow.” What have been some of the lessons learned through your real estate investing career? The second half of that question would be as part of managing a fund. You don’t know what you don’t know. Business is all about trying things out, tweaking them and changing systems. Real estate is the same way. You dive into a property and you’re going to figure things out along the way. To circumvent that, what I did is I learned along the way. I spent three years trying different things. If I was going to recommend anything to anybody and I’m not saying this now because I have a course or something but try to follow a framework or copy someone if you can. It’ll save you a lot of headaches and money. If you could find someone, especially when you get into syndication stuff and you’re getting into funds, you can spend a lot of money here and mess it up pretty well. Even if you’re buying a single-family house and undershoot renovations because you have no basis, framework, model or person to copy, you can be like us. We were under $40,000 for our renovations on our 1st deal. I went to the bank and I got a 16% loan from USAA or Wells Fargo. I was like, “This better work.” You can mess up a lot if you don’t follow a framework. That was in 2018. As people scale and get into the multifamily and some of these other deals, if you undershoot the renovation, it’s also costing you more time. Your absorption rates then change. Once that starts happening, your whole model shifts and all those projected returns you have will get pushed. That’s when the snowball can start picking up speed and going downhill. Holding costs are something that people don’t talk about but that is an experience. You’ll figure it out quickly. Experienced people are able to have lower holding costs because they know what they’re doing and they can turn a property or renovate quicker, which time is money. Some people will take 6 to 9 months to renovate a property and I’m like, “What are your holding costs? You’re spending money for all that.” Experience is key for getting holding costs down. I would tell anybody who’s putting together any type of proforma, always be conservative. Don’t pencil it for the best-case scenario because 99 out of 100 times that best-case scenario doesn’t work. I like to put everything down on paper and write what everything’s going to take and put it out before I start even plugging in numbers. That way it’s like, “Here are all my assumptions.” Your pro forma is your performer. You’re not looking at it and being like, “I can do better to make the number look the number I want it to be.” For some reason, it’s like getting an appraisal on a property you’re going to buy, “The appraisal came in just what I’m buying it for. Isn’t that amazing? I can make 15% on this property or pay my investors 15% on an awesome performer who comes in at 11%. If I did this, it’s 15% so let me do this.” That’s the stuff you don’t want to do. You can tweak a lot of stuff and make the paper look good but conservative is the best way to go. Have some room and buffer to work with if you need to. Conservative is the best way to go. Have some room and buffer to work with if you need to. Click To Tweet Especially if you’re buying any property that needs work, you should be the one getting that upside as a purchaser, not the seller. Your seller is like, “Why are you giving them all the upside of putting in the best-case scenario for yourself?” That’s something that you should take care of. You wanted to get into this and be active after you looked at your 401(k). Not everybody should be a real estate investor and not everyone should be an active investor but I’m a true believer everyone should invest outside their 401(k). We joke around here about the 40, 40, 40 club, 40 years, 40 hours a week for essentially 40% of your pay at the end of the day, which is not going to get you where you need to be. What’s some advice you would give to somebody who doesn’t have the tenacity or time to be an active investor in the space? I did a post on LinkedIn and I’m big on LinkedIn as well. I post a lot on there. A simple rule of thumb is if you’re under $100,000, you’re probably better off finding a way to do it actively or with creative financing. You can probably do better than giving up your last $25,000. If you’re between $100,000 to $200,000 in salary, it’s your choice. Depending on, “Do you like your job? Do you have a passion? Do you have a purpose? Do you not have the time because you have family and kids?” It’s going to be your choice. Anybody with a $200,000 salary or more, you are making a good salary, probably pretty busy and have a family. You’re almost better off doing the passive investment route. You don’t have to go learn everything. You can learn the basics and know what a good deal is or isn’t or what a good group looks like. Are they honest? Do they have good updates and all that stuff? You can know that without spending too much time on it. You don’t have to be an expert at real estate to invest in real estate. It’s the same reason why you pay someone to mow your lawn, don’t do your tea or hire an attorney for a court case. It’s the same thing in real estate. You don’t have to be the expert unless you fit those zones and you want to. As we wrap up this episode, what would be some advice that you would be giving somebody getting started or giving back to yourself when you started a couple of years ago? The biggest thing people forget is to have a goal with a timeline. Find a strategy, pick it and don’t get lost in the shiny. Find a strategy, pick it for 90 days and go after it. Whether the 90-day goal is to learn about it or go do it, set your timeline, pick your strategy, copy someone or have a framework if you can. That’s what I see as the biggest mistake people do. They change their goals so much and don’t commit to anything. Get clear about your goal, commit to it and take action. That’s the key that I would tell anybody. It took me six months to even start making offers. I was like, “I would underwrite but I wouldn’t make any offers.” I did the same thing. I’d been in real estate for twenty years at the time and I learned about note investing. I spent six months spending time how to do everything. I built this crazy calculator to underwrite all the deals. I’m underwriting all the deals and was too nervous to pull the trigger. The first trigger I pulled was a $20,000 investment, which in real estate, that’s not a lot of money. For me, at the time, it was a lot of money. $20,000 is a lot of money for people. I was also watching people spend $10,000 or $15,000 on a course and I’m like, “If I can spend $20,000 and learn the hard way, I knew I was going to lose everything but if I lost a few thousand bucks on it, it’s still great education and I’m making money on those deals.” Chris, why don’t you tell us a little bit more about the fund? Is it still open? What’s the minimum and investment strategy? Also, a little about training, the people that you have and then how people can reach out to you. If you are interested in being a passive investor, we have a fund. We invest in short-term rentals. We’re investing in a 160-unit portfolio. We’re one of the partners on this deal. You can invest in a portfolio throughout the United States. $50,000 is the minimum with a 16% return. It’s for accredited only. That’s all I can talk about it here but it’s great for passive investors. If you want to be active, reach out. I’m on LinkedIn. You can schedule a fifteen-minute call. We can talk either way. Passive or active, I’m here to help. That’s how I would suggest getting going. Chris, thank you for being on this episode. For all readers out there, if you have not already, please make sure to like us and leave us a review from your favorite platform. Chris, thanks for joining us. I appreciate it. Take care.  

Important Links

• Valkere Investment Group
• LinkedIn – Chris Levarek

 

About Chris Levarek

CHRISTOPHER LEVAREK – Managing Partner | Operations Manager – Chris Levarek is a full-time real estate investor and managing partner of Valkere Investment Group. He is a former firefighter in the US Air Force, a graduate of Arizona State University, and a leader in information technology for the banking sector. Since founding Valkere Investment Group, Chris has collaborated with other investors and W-2 workers to expand the options and opportunities available through real estate investing.